Taxation of international payments to and from Brazil
Electronic money transfers, whether to or from Brazil, will find themselves subject to a tax on financial operations: Imposto sobre Operacoes Financeiras (IOF). Depending on the source of the payment, other taxes may also fall due. Luis Felipe Canto Barros, Head of Institutional Matters and Rafael Paim Broglio Zuanazzi, Director of Law and Economic Department, Russell Bedford, Brazil illustrate some principles of how the taxation of these payments may occur
Luis Felipe Canto Barros
Head of Institutional Matters, Russell Bedford, Brazil
Rafael Paim Broglio Zuanazzi
Director of Law and Economic Department, Russell Bedford, Brazil
Tax on financial operations (IOF)
In this context, a relevant financial transaction occurs when money transfers electronically between Brazil and another country. It does not matter whether the individual or legal entity is receiving or sending money, IOF will apply. As IOF is a withholding tax, the bank, or other institution, processing the transaction will deduct IOF at source.
IOF is deducted from the money transfer at the following rates:
- receiving money in Brazil from overseas: 0.38%
- sending money from Brazil to an overseas third party: 0.38%
- sending money from Brazil to an overseas account in the same name: 1.1%
Income tax (IR)
Imposto de Renda (IR) is a federal income tax due on payments that meet the definition of income. Operating alongside this is the IRRF withholding income tax, a tax due on payments overseas, usually representing a payment for services or tourism purposes.
Depending on variables such as the type of payment and the country of destination, IRRF is charged and deducted at source at a rate between 10% and 25%. Payments are first converted from foreign currency to Brazilian real using an exchange rate published by the Central Bank of Brazil – the PTAX rate. The PTAX rate from two days prior to the transaction is then compared with the open market exchange rate applying at the time of the transaction; for the calculation of IRRF the higher exchange rate applies.
Service tax (ISS)
Imposto Sobre Serviços (ISS) is a municipal service tax payable on the provision of services. The rate of ISS varies from city to city but is between 1% and 5% of the chargeable value of services. ISS may also apply to services imported from abroad but does not apply to exported services.
It is worth mentioning that, unlike some other forms of sales tax, ISS is a cumulative deduction: there is no form of offset. Therefore, the more providers in the service supply chain the more tax arises and the higher the final charge to the end customer.
Social contributions payable on imports
There are two social taxes that apply to imports of goods and services: Programa de Integração Social (PIS) – social integration programme, and Contribuição para o Financiamento da Seguridade Social (COFINS) – contribution for social security financing.
These taxes are triggered when foreign goods and services enter Brazil and are paid by the Brazilian importer of the goods or services. PIS applies to the value of the goods or services at 1.65% and COFINS at 7.6%. These taxes are also due on payments to Brazilian residents living abroad.
In summary, all international payments flowing to or from Brazil will always be liable to the IOF tax on financial transactions. However, other taxes may apply depending on circumstances. Therefore, it is important to seek specialist advice.